AFM102 Lecture Notes - Lecture 5: Systems Design, Activity-Based Costing, Cost Driver
Document Summary
Process costing system is used in situations where the company produces many units of a single product for a long period of time. (ex. All of these industries are characterized by an homogenous product that flows evenly through the production process on a continuous basis. Unit product cost = total manufacturing cost/total units produced. Job order costing system used in situations where many different products or services are produced each period. Levi clothing factory makes different types of jeans for men and women. An order of 1000 jeans is called a job. In a job order costing system, costs are traced and allocated to jobs, then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. Job order costing is used in service industries, non for profit organizations etc.